Butterfly Labs (BFL), a company admittedly providing bitcoin mining hardware, has agreed to settle charges imposed by the US Federal Trade Commission for deceiving their consumers.
Settlement orders require the company and its cofounder and largest shareholder Sonny Vleisides to pay over $38,000,000, writes FTC in a press release. But in fact BFL will not have to pay the whole sum. The fine will be suspended as soon as initial $15,000 is paid off, and Vleisides contributes $4000 more from his personal funds, due to the defendants’ inability to pay the whole amount.
In spite of the company’s alleged fraudulency, the settlement orders are not supposed to altogether prevent BFL from selling bitcoin mining facilities. They only provide measures to make the trade more transparent and responsible.
“In addition to prohibiting the defendants from making any misleading claims about their products, the company and Vleisides will also be prohibited from taking up-front payments for Bitcoin machines and other products used to mine for any virtual currency unless those products are available and will be delivered within 30 days,” reads the press release.
BFL delayed shipping of thousands of bitcoin computers that their customers had paid for, or failed to ship them at all, claimed FTC back in 2014, shortly after the federal court had shut down BFL at the Commission’s request (the prohibition was later cancelled, BFL points out). As it also turned out, the company was using these mining machines to mine bitcoins themselves.
The delay in shipping of the computers was especially harmful because each next generation of mining facilities renders previous models useless, notes FTC.
Another complaint against BFL made by FTC at that time included alleged fraud with mining services. According to FTC, the mining company received thousands of dollars paid by customers for computing time and didn’t pay a single bitcoin in return.
It is worth mentioning, though, that purchase of computing time inevitably involves risk: nobody can guarantee that you will complete a block in a given period of time.
Meanwhile, BFL has created a page on its website where the company addresses, as they call it, “misperceptions” about themselves. According to the firm, “there were some unexpected delays experienced and customers were kept informed along the way”.
Although BFL has agreed to settle FTC’s charges, the company does not in fact openly admit its guilt. “BFL continues to believe that the FTC case had no merit, but agreed to settle for $15,000 to avoid ongoing litigation expenses and conserve remaining assets for payment of refunds to consumers,” by the company’s press release.
The BFL issue is somewhat unique in the history of bitcoin fraud. Many regulators are worried that the anonymous nature of the cryptocurrency and the volatility of its exchange rate can cause trouble, making bitcoin users vulnerable and giving room for cyber criminals. The famous Silk Road exchange, for example, was involved in money laundering and other behind-the-scene activities. This time, however, it is safe to say that the deceit had nothing to do with the nature of bitcoin itself. It was “conventional” fraud in the field of cryptocurrency.
Andrew Levich
